CHAPTER 15 Stockholders’ Equity LEARNING OBJECTIVES 1. Discuss the characteristics of the corporate form of organization. 2. Identify the key components of stockholders’ equity. 3. Explain the accounting procedures for issuing shares of stock. 4. Describe the accounting for treasury stock. 5. Explain the accounting for and reporting of preferred stock. 6. Describe the policies used in distributing dividends. 7. Identify the various forms of dividend distributions. 8. Explain the accounting for small and large stock dividends, and for stock splits. 9. Indicate how to present and analyze stockholders’ equity. *10. Explain the different types of preferred stock dividends and their effect on book value per share. *This material is covered in an Appendix to the chapter. CHAPTER REVIEW 1. Chapter 15 focuses on the stockholders’ equity section of the corporate form of business organization. Stockholders’ equity represents the amount that was contributed by the shareholders and the portion that was earned and retained by the enterprise. There is a definite distinction between liabilities and stockholders’ equity that must be understood if one is to effectively grasp the accounting treatment for equity issues. This chapter addresses the accounting issues related to capital contributed by owners of a business organization, and the means by which profits are distributed through dividends. The Corporate Form of Entity 2. (L.O. 1) The corporate form of business organization begins with the submitting of articles of incorporation to the state in which incorporation is desired. Assuming the requirements are properly fulfilled, the corporation charter is issued and the corporation is recognized as a legal entity subject to state law. The laws of the state of incorporation that govern owners’ equity transactions are normally set out in the state’s business corporation act. *Note: All asterisked (*) items relate to material contained in the Appendix to the chapter. 3. Within a given class of stock, each share is exactly equal to every other share. A person’s percent of ownership in a corporation is determined by the number of shares he or she possesses in relation to the total number of shares owned by all stockholders. In the absence of restrictive provisions, each share carries the right to participate proportionately in: (a) profits, (b) management, (c) corporate assets upon liquidation, and (d) any new issues of stock of the same class (preemptive right).

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4. The transfer of ownership between individuals in the corporate form of organization is accomplished by one individual selling or transferring his or her shares to another individual. The only requirement in terms of the corporation involved is that it be made aware of the name of the individual owning the stock. A subsidiary ledger of stockholders is maintained by the corporation for the purpose of dividend payments, issuance of stock rights, and voting proxies. Many corporations employ independent

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